Tax Reforms

Why Centre plans to replace the Indian Stamp Act, 1899 with a new law

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Stamp Duty

Mains level : Read the attached story

stamp

Introduction

  • Stamp duty, a tax levied for registering various documents, plays a significant role in India’s financial landscape.
  • However, the existing Indian Stamp Act, 1899, has faced challenges with redundancy and non-uniform application.
  • To address these issues, the Ministry of Finance has introduced the ‘Indian Stamp Bill, 2023,’ seeking to revamp and modernize the stamp duty regime.

Understanding Stamp Duty

  • Nature of Stamp Duty: Stamp duty is a government tax levied for the registration of various documents, such as agreements and transaction papers, with the registrar.
  • Tax Calculation: The amount is typically a fixed value based on the document’s nature or a percentage of the agreement’s stated value.

Scope of Stamp Duty

  • Applicable Documents: Stamp duties are imposed on a range of documents, including bills of exchange, cheques, promissory notes, bills of lading, letters of credit, insurance policies, share transfers, debentures, proxies, and receipts.
  • Jurisdiction: While levied by the Central government, stamp duty revenues are collected by individual states within their territories, as authorized by Article 268 of the Constitution.

Indian Stamp Act, 1899

  • Fiscal Legislation: The Indian Stamp Act, 1899, is a fiscal statute governing the imposition of taxes in the form of stamps on transaction-recording instruments.
  • Instrument Definition: Under Section 2 of the Act, an “instrument” encompasses any document creating, transferring, limiting, extending, extinguishing, or recording any right or liability.
  • Stamp Characteristics: A “stamp” is defined as any mark, seal, or endorsement authorized by the State Government, including adhesive or impressed stamps, for the Act’s duty purposes.
  • Taxable Instruments: Section 3 of the 1899 Act specifies that certain instruments or documents are chargeable with amounts listed in Schedule 1 of the Act, including bills of exchange and promissory notes.

Reasons for the Indian Stamp Bill, 2023

  • Redundancy and Inoperability: The Ministry of Finance cites the redundancy and inoperability of several provisions within the Indian Stamp Act, 1899.
  • Lack of Uniformity: The absence of provisions for digital e-stamping and the lack of consistent stamp duty legislation across Indian states necessitate a new law.

Notable Provisions in the Draft Bill

  • Digital E-stamping: The draft Bill introduces provisions for digital e-stamping, enabling electronic payment of stamp duty.
  • Digital Signatures: It includes provisions for digital signatures, redefining “executed” and “execution” to mean “signed” and “signature,” incorporating electronic records and signatures as defined in the Information Technology Act, 2000.
  • Penalty Enhancements: The draft Bill proposes increased penalties, raising the maximum penalty from Rs 5,000 to Rs 25,000 for contravention of the law and imposing a daily penalty of Rs 1,000 for repeated offenses.

Conclusion

  • The ‘Indian Stamp Bill, 2023’ represents a significant step towards modernizing stamp duty laws in India.
  • By addressing the shortcomings of the existing legislation and introducing digital-friendly provisions, the bill aims to streamline and enhance the stamp duty regime, facilitating smoother transactions and compliance in the country’s financial landscape.

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